Margin Call: What It Is and How to Avoid One

A margin call is a demand from your broker to add money or close positions because the equity in a leveraged account has fallen below the required minimum. It happens when a trade bought partly with borrowed money moves against you far enough that your own stake no longer covers the broker's safety buffer. If you do not meet the call, the broker can sell your positions for you.

This guide covers initial and maintenance margin, the margin call price formula, forced liquidation and how to avoid a call. Margin is a leverage topic, so it sits inside the wider discipline of risk management in trading.

Quick answer: A margin call is a broker's demand that a trader deposit more cash or reduce positions after losses push account equity below the maintenance margin, the minimum share of a leveraged position the trader must fund. If the trader does not act, the broker can close positions without permission to repay the borrowed money.

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Key facts about margin calls

What is margin in trading?

Margin is the portion of a position's value that a trader funds with their own money, with the broker lending the rest. If you open a 50,000 dollar position with 10,000 dollars of your own cash, your margin is 10,000 dollars and you are using 5x leverage (50,000 / 10,000 = 5).

Leverage cuts both ways: at 5x, a 1% move in the asset is a 5% move in your equity.

What is the difference between initial and maintenance margin?

Initial margin is the minimum equity needed to open a leveraged position, while maintenance margin is the minimum equity you must keep while the position stays open. Maintenance margin is always lower than initial margin, which gives the trade some room to move before the broker steps in.

For US stocks, Regulation T (set by the Federal Reserve) requires 50% initial margin on most purchases, and FINRA rules require at least 25% maintenance margin. Many brokers set stricter house requirements, especially on volatile stocks. Futures, forex and crypto venues set their own levels, which can change at short notice, so always check your broker's margin schedule.

What is a margin call?

A margin call is the broker's notice that your account equity has dropped below the maintenance margin requirement. The broker is protecting its loan: if prices keep falling, your equity could hit zero and the broker would be exposed to the remaining losses.

When the call arrives you usually have three choices:

1. Deposit cash (or eligible securities) to lift equity back above the requirement.
2. Close part of the position so the remaining position needs less margin.
3. Do nothing, in which case the broker can sell positions on your behalf.

Some brokers give a deadline of a few days. Others, particularly in fast markets, can act immediately and without contacting you.

How does a margin call work? A worked example

The chart below follows one leveraged trade as the price falls. The account has 10,000 dollars of equity and holds a 50,000 dollar position, so leverage is 5x and initial margin is 20% (10,000 / 50,000). The maintenance margin is 10% of the position's current value.

Here is the arithmetic behind the two lines.

Equity falls 500 dollars for every 1% drop. The position is 50,000 dollars, and 1% of 50,000 is 500. After a fall of f percent, equity = 10,000 minus 500 x f.

The maintenance requirement shrinks slowly. It is 10% of the position's current value: 5,000 dollars at entry, falling by only 50 dollars per 1% drop.

The lines cross at about 11.1%. Set equity equal to the requirement:

• Equity: 10,000 minus 50,000 x f
• Requirement: 10% x 50,000 x (1 minus f) = 5,000 minus 5,000 x f
• 10,000 minus 50,000f = 5,000 minus 5,000f
• 5,000 = 45,000f, so f = 0.111, or 11.1%

At an 11.1% fall the position is worth about 44,444 dollars, equity is about 4,444 dollars, and 10% of 44,444 is also about 4,444. That is the margin call point.

At a 20% fall the equity is gone. 500 x 20 = 10,000 dollars of losses, which wipes out the whole stake. Any further fall is a loss on the broker's loan, which the margin call exists to prevent.

Notice the asymmetry. An 11.1% move in the asset has already cost about 55.6% of the account (from 10,000 to roughly 4,444). That is the real lesson of leverage: small price moves become large account moves.

How much would you need to deposit?

If the price reaches 15% below entry, the position is worth 42,500 dollars, equity is 10,000 minus 7,500 = 2,500 dollars, and the requirement is 10% x 42,500 = 4,250 dollars. The shortfall is 1,750 dollars. Some brokers ask only for the shortfall; others ask you to restore equity to the initial margin level.

How do you calculate the margin call price?

The margin call price for a long position is entry price x (1 minus initial margin) / (1 minus maintenance margin). Initial margin here means your equity as a share of the position when you open it.

Using the example above with an entry price of 100:

• Initial margin = 20%, maintenance margin = 10%
• Margin call price = 100 x (1 minus 0.20) / (1 minus 0.10) = 100 x 0.80 / 0.90 = 88.89
• That is a fall of 11.1%, matching the chart

For a US stock bought at the Regulation T minimum (50% initial) with a 25% maintenance requirement:

• Margin call price = 100 x 0.50 / 0.75 = 66.67, a fall of 33.3%

For a short position the formula flips, because losses come from rising prices: margin call price = entry price x (1 plus initial margin) / (1 plus maintenance margin). With 20% initial and 10% maintenance, a short opened at 100 gets a call at 100 x 1.20 / 1.10 = 109.09, a rise of about 9.1%. Shorting carries extra costs and risks on top of this, including borrow fees and possible share recalls, covered in our guide to short selling and, at the extreme, a short squeeze.

Brokers can raise maintenance margin at any time, which moves your margin call price closer, and many calculate on the whole account, so losses on one position can force sales of another.

What happens if you don't meet a margin call?

If you do not meet a margin call, the broker can liquidate your positions to bring the account back into line, usually without asking which positions to sell or at what price. Forced liquidation tends to happen at the worst moment, after a sharp fall and in thin liquidity.

You can also end up owing money. If a price gaps (for example, overnight or on news) straight past the point where your equity hits zero, the sale may not cover the loan. The negative balance is a debt to the broker: with margin, your loss is not capped at what you put in.

A margin call also locks in a loss that is hard to win back. The chart below shows the gain needed to recover from different losses.

A 20% loss needs a 25% gain to recover; a 50% loss needs 100%; a 75% loss needs 300%. In the worked example, the account had already lost about 55.6% at the margin call point, a hole deeper than the 50% bar on the chart. Once positions are sold, there is no position left to recover with.

Margin call vs liquidation in crypto

In crypto derivatives, a margin call is often replaced by automatic liquidation: the exchange closes the position itself as soon as margin falls below maintenance, usually with no warning and no chance to deposit.

High leverage brings the liquidation price very close to entry. Our guide on liquidation in trading shows how to read a liquidation price and why 20x or 50x positions can be wiped out by ordinary volatility.

How to avoid a margin call

You avoid a margin call by keeping leverage modest, defining your exit before entry, and holding spare cash.

1. Use less leverage than you are offered. At 5x, an 11.1% fall triggered the call in our example. At 2x with the same 10% maintenance, the call price is 100 x 0.50 / 0.90 = 55.56, a 44.4% fall. Lower leverage buys time.
2. Set a stop-loss well above the margin call price. Your stop-loss should close the trade on your terms long before the broker does. If your stop sits below the margin call price, you are letting the broker manage your risk.
3. Size positions from the stop, not from the buying power. Decide the dollar amount you are willing to lose (many traders use 0.5% to 1% of the account), then size the position so the stop distance equals that amount. The position size calculator does this arithmetic.
4. Keep a cash buffer. Do not use all available margin. Unused buying power is what absorbs a bad day.
5. Watch correlation. Several leveraged positions that move together behave like one large position.
6. Respect gap risk. Stops do not protect against overnight or news gaps, so hold less leverage into earnings, weekends and major data releases.

Famous margin call episodes

Margin calls feature in several famous crashes because forced selling feeds on itself: falling prices trigger calls, calls force sales, and sales push prices lower.

• 1929. Buying stocks on margin was widespread in the 1920s, and margin calls during the October 1929 crash amplified the selling.
• 2008. During the global financial crisis, lenders raised margin requirements and cut credit lines across markets, forcing funds and banks to sell assets into falling prices.
• 2021. Archegos Capital Management, a family office, held large concentrated positions through derivatives with several banks. When some of those stocks fell, the banks issued margin calls, and when they were not met, the banks sold large blocks of shares, causing heavy losses at some of them.

The common thread is concentration plus leverage.

Can AI help you avoid a margin call?

AI tools can help with parts of the job: screening for correlated exposure across positions, analysing a trading journal for habits such as adding to losers, or running scenario tests on how a portfolio would behave in a sharp fall. Our guides on AI trading strategies and backtesting trading strategies cover how to approach that kind of analysis.

AI does not remove risk. A model cannot predict a gap or decide how much you can afford to lose; leverage, stops and position size still need human judgement.

How is a simulated prop account different?

A simulated prop account has no personal margin debt: you are not borrowing real money, so a losing trade cannot leave you owing a broker. Velotrade, a multi-asset prop trading firm, offers simulated evaluations across crypto, forex, stocks, index ETFs and commodities. Position size is limited only by the leverage available for each instrument (for example, BTC is 10x in the challenge and 5x once funded; single stocks are 5x and 3x), and you can check every figure on the prop firm leverage guide and the instruments page.

The risk limits that matter are different from a margin call. Velotrade's only hard limits are the daily loss limit and the static maximum drawdown:

• Daily loss limit: 5% on CLASSIC 2-Step, 4% on CLASSIC 1-Step and 3% on PRO 1-Step. It resets every day at 00:30 UTC and is set from the higher of your balance or equity at that time.
• Static maximum drawdown: a fixed dollar floor set at activation. On a 100,000 dollar CLASSIC 1-Step account, the floor is 93,000 dollars for the life of the account. The static maximum drawdown guide explains how it works, and the drawdown calculator shows your room.

The habits carry over: treat the drawdown floor as your margin call price and size positions so you never get near it. This is educational content about a simulated evaluation, not investment advice.